‘Marketers aren’t the only ones taking a risk on advertising’

In his latest column on media, consultant and former ISBA director Bob Wootton explains why it is crucial for marketers to understand the risk each company takes on in the advertising supply chain.

Risk Jenga

Marketers spend considerable time in internal meetings discussing risk, so you know all about it. If you understand this, then you know how the value chain of advertising really works.

So let’s start at the top with you, the client.

You fight long and hard for ‘your’ marketing budgets. Even more so under zero-based budgeting.

READ MORE: Zero-based budgeting – Critical to growth or a distraction?

The uncertainties around spending money on most forms of marketing don’t help. Put simply, you don’t know if it’s going to work. Even if it does work, you probably can’t prove whether it was the ad campaign, pricing, distribution, competitor inactivity, macroeconomy, Brexit/Trump, weather or weekends in the month that caused it.

Isolating effect is a big ask, even with econometrics and market mix modelling – themselves both works in progress.

The new(ish) mega media companies create no content of their own, yet profit from that of others and have very ‘modern’ attitudes towards corporate taxation.

Thus the marketer feels they shoulder all the risk. At the point where you commit funds, this is technically true, but in so thinking you dismiss the risks that other parties in the value chain face, and may therefore miss ways to mitigate your own.

The risk for agencies

Next down the value chain, the creative agencies’ headline risks are twofold – keeping up the conveyor belt of new ideas on which their business runs, and good old cashflow. Talent, resource, profile, leadership and management all serve these ends.

Your media agency is a more intriguing beast through the lens of risk. It’s subject to similar tensions but makes almost all its money from transactions, not ideas. In submitting to your (or your procurement colleagues’) demands, it guarantees ever-lower pricing for service and media.

The former is delivered by spreading the leadership team more thinly and by deploying fewer, less experienced people on your business. The risk that it will be insufficient is widespread, one reason so many marketers harbour dissatisfaction with their agencies.

Media agencies recoup the revenue deficit from your diminished fees or commissions through bulk trading commitments to media owners in return for super-keen pricing. This is a big risk they take on your account.

The online risks

The online value chain is more complicated with several additional service layers between marketer and consumer. Data management platforms, agency trading desks, demand- and supply-side platforms, networks and aggregators all take a dip as money passes through. Well under 50% of ad spend manifests as working media.

READ MORE: ‘Digital media is a buyer’s market, but that doesn’t make it a good deal’

These companies’ risks lie ostensibly in the development of new tech and of operating in a super-competitive ‘wild west’ marketplace. Yet many of these platforms are assembled from very similar components and are therefore actually quite generic.

These intermediaries can also take a pretty casual attitude towards your risk, so viewability, undesirable ad placement, ad fraud and ad blocking end up being your problem, not theirs. Recent press reports are sobering.

This tech layer faces two serious new risks. Widespread – and in my opinion long overdue – reconsideration of the value of online media, and consolidation.

Finally, the media owners who deliver you the eyeballs you seek. You have a lot in common with them. You make things people (hopefully) want to buy. They make things people want to watch, read or listen to.

Like creative agencies, their primary risk is continuing to do this, in many cases daily.

Their secondary risk is increased competition as more and more media come to market, which has helped big media agencies persuade them to trade in increasing bulk at lower prices, while giving them further rebates as well.

READ MORE: Bob Wootton – Restoring client-agency trust requires new media auditing standards

Media owners now find themselves competing with, and regrettably often yielding to, the new(ish) mega media companies. These create no content of their own yet profit from that of others and have very ‘modern’ attitudes towards corporate taxation. And they extract colossal ad revenues by leveraging considerable data-driven consumer insight.

What do you do?

Back in the land of the clients, agency relationships used to last longer that they do today. Yet it can now take many months to change complex agency rosters, piling risk back on the advertiser. I’ve heard many stories of contract negotiations outlasting the relationship they relate to. But to be frank, this is usually down to a lack of focus among the brand team.

So if you understand the value chain and the risks than run through it, you can see how to minimise yours. Three top tips :

  • Develop and maintain direct relationships with all key business partners (call them suppliers if you must) – don’t just rely on your agencies
  • Develop stronger, franker relationships with the key people at your agencies
  • Protect your interests with strong, relevant and regularly updated contracts with your key suppliers.

Simples.

Bob Wootton was director of media and advertising at ISBA and is now principal of Deconstruction Consulting.

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  • laura Church 20 Mar 2017 at 4:36 pm

    I embrace many of #BobWooten’s observations. After leaving PR and journalism to spend a dozen years as a direct mail advertising account exec, then sales manager, I left advertising to become a lobbyist. After learning about inbound marketing, I opened my own public affairs, social media, marketing communications and event management firm which focuses on digital, PR and social media. I became a believer in inbound marketing in the early days of the founding of Hubspot.com, a CRM company.

    Rather than paying for ads, coupon ins, or discounting pricing in order to talk people into coming to brands, I came to believe that FIRST money is well spent to get a very clear, clean responsive website and email marketing program up, and to make sure it’s fully responsive, and able to keep up with dialogues with potential customers.

    THEN the advertising money can be spent to selectively advertise to attract new people to visit and want to stay with your brand.
    Keeping in communication with prospects and clients, teaching people things for free so your brand becomes a resource — THAT makes customers believe in brands. Look at companies such as #Hubspot.com, which give away millions of dollars of training and information in order to be a reliable source in their channel. They have the right idea. I owe my social media training to Hubspot’s free webinars and white papers. I knew I needed to embrace inbound marketing, and they taught me how. I refer business to companies which teach people and are reliable.

    To me, companies which maintain consistency will get the best #ROI long term – regardless of their ad spend. It’s more about having SYNERGY and being a resource, than about buying ads and hoping. Laura O’Hear Church @lauraohear

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